American is the world’s biggest airline in terms of revenue by kilometres flown, while China Southern is the fifth largest and number one in Asia, according to the latest available rankings by the International Air Transport Association.

The move comes as increasing demand for air travel among China's growing middle class is expected to make it the world's biggest aircraft market in the coming years.

If the deal goes through, American will be able to take a seat at the board of China Southern without voting rights.

The report buoyed share prices of two other major Chinese airlines Thursday. China Eastern jumped 4.71 percent in Hong Kong and more than two percent in Shanghai, while flag carrier Air China rose four percent in Hong Kong and more than three percent in Shanghai.

American Airlines' earnings plunged in the final quarter of last year, with net profit dropping to $289 million from $3.3 billion in the same period last year.